In a choppy economic climate, finance teams have been given the unenviable task of predicting the weather. Making predictions and forecasts around finances in the midst of such an unpredictable time is hard to say the least. Given what the past 18 months have delivered, what lies ahead could vary from a pleasantly warm day to a torrential downpour.

Understandably, this has led to a high level of anxiety among finance teams over what exactly could happen over the course of the next 6, 12 or 18 months. Resulting in a feeling of unpreparedness from businesses, with our recent research showing that only 45% describe themselves as recession-ready.

A further complication is that the role of the CFO is becoming increasingly complex – with 97% saying it has changed amidst the current economic climate. Whether CFOs are being asked to bring their strategic overview to operations, running the compliance and legal teams or deciding how much to spend on marketing, it’s clear this is driving an increased level of pressure and demand on the role.

Considering finance teams spend as much as a quarter of their time forecasting, more must be done to empower these teams to do their role efficiently and help drive business decisions in the process. One area of focus for business leaders should therefore be predictive analytics.

The power of predictive analytics

With finance teams under pressure from high levels of uncertainty, businesses aren’t exactly helping themselves with time-consuming practices, complicated team structures and outdated processes. However, predictive analytics can be a true game changer because it gives the finance team a much better chance at predicting the future.

A major way predictive analytics relieves pressure on teams is how it helps them predict outcomes more accurately, exposing risks and opportunities that might have otherwise escaped their attention – shining a light in those hard-to-reach corners of your current and future finances. This not only helps businesses optimise their risk management, but pivot quickly should something catch them off guard.

With the ability to comb quickly through large amounts of data and identify trends and patterns that your team might miss, in a world of rapidly-changing business conditions, predictive analytics tools are a worthwhile investment. What’s needed first though is the bedrock of financial data to fuel this setup.

Building a common data environment

Before you embark on the road to predictive analytics, it’s crucial that you first build the right environment to record quality data across your business. Any predictive setup will only be as good as the data you put into it – so this is a stage worth spending your time and investment on.

Essentially, you need to have a good overview of three things – how much you are spending, where you’re making money and whether you have a path to profitability. Analytics are powerful because they allow the finance team to have different levels of account drill down, provide cohort analysis, different potential scenarios planning, and much more.

Ideally, you’ll be able to analyse your spending all within the tool. For instance, what has the team been spending on? Are the team spending on travel, entertainment or subscriptions? This potentially highlights suppliers you were previously unaware of or can remind you when you might need to consider negotiating your contract renewals.

Firstly, all this might sound like an overkill, however good finance management starts with providing  good financial visibility. The more visibility you have, the greater the ability to educate the business and make better decisions.

Trust and control are not mutually exclusive – when it comes to your business, ensure there are clear spend guidelines without restricting your employees’ freedom to stay flexible. Consider introducing customisable spend limits, multi-level approvals and flexible reviewer thresholds as ways to personalise your spend management system and to get the level of control you want.

Secondly, you might be thinking this level of data analytics would add hours onto your team’s busy schedule. The beauty of a good data setup is that your team won’t need to spend extra time capturing this data – the details are captured as part of the spend management process.

The aim here is to create a system where data can be easily uploaded by your employees to create a shared data environment that is easily searchable for your finance team. All leading to easy-to-produce, real-time spend reports and insights for future budget planning and forecasting.

The big pay-off

Investing in data analytics won’t just give you a robust oversight of current spending, but it will also provide you with future spending trends too. It will require a bit of process management and software investment up front, but the big pay-off will come when those you’ve tasked with telling your fortune, save you a fortune.

Karen Ko is senior finance director at Pleo.